What the IRS says your options depend on
The IRS says the rules depend on your relationship to the account owner, whether the owner died before or after their required beginning date (the first date they had to take required distributions), and, for deaths after 2019, on whether you are an eligible designated beneficiary (IRS: beneficiary).
- Surviving spouse: the IRS lists keeping it as an inherited account, taking distributions over your own life expectancy, and rolling the account into your own IRA, among the options, depending on timing. Whether a spouse is the sole beneficiary is determined by September 30 of the year after death.
- Eligible designated beneficiaries (a minor child of the owner, a disabled or chronically ill person, or someone not more than 10 years younger than the owner) can generally take distributions over a life-expectancy period.
- Other individual beneficiaries generally follow the 10-year rule.
- Any beneficiary of an IRA can generally take a lump sum at any time, and taxable distributions are included in income.
Non-spouse transfers
The IRS lists rolling the account into your own IRA as an option for a spouse, but not for other beneficiaries. For employer-plan money, such as a 403(b), the IRS says a non-spouse beneficiary can make a direct rollover only into an inherited IRA set up to receive the distribution, which stays an inherited account with the required distribution rules still applying (IRS Pub. 571).
The traps
- Taking a check. A distribution paid to a non-spouse beneficiary is generally taxable income, not a rollover.
- Losing the “inherited” label. The account must stay titled as an inherited account unless you are a spouse electing to treat it as your own.
- A payout schedule that does not fit. If you have to take money out on a set schedule and the annuity charges for early withdrawals, ask for the surrender rules in writing before you buy.
- Inherited Roth IRAs. The IRS says beneficiaries of Roth IRAs are generally subject to required distribution rules too.
Where an annuity fits
Some carriers offer annuities that can be held in an inherited IRA. Availability, payout choices and whether a contract can meet the required distribution schedule vary by carrier and state, so ask for the answer in writing before moving anything. An annuity does not change the payout deadlines, and its guarantees depend on the issuing company’s claims-paying ability. See every rollover account at a glance.
Inherited an IRA? Talk it through before you transfer it.
Request a no-obligation Retirement Income Review. We explain your options in plain English, with no pressure and no promises of returns.
Request my Retirement Income ReviewQuestions to ask
- Am I the spouse, a minor child, disabled or chronically ill, or someone else?
- When did the owner die, and had they already reached their required beginning date?
- Will the transfer be trustee-to-trustee into an account titled as inherited?
- Does the annuity’s payout and surrender schedule fit the required withdrawals?
Related reading
See Roth rollovers, QLACs and required minimum distributions and how annuities are taxed.
Where to check these rules
Every rule on this page comes from the IRS. Read the source for your situation:
- IRS: Retirement topics, beneficiary
- IRS Publication 571: Tax-sheltered annuity plans (403(b) plans)
- IRS: Retirement topics, required minimum distributions
Availability and rules vary by state
Life insurance and annuity products, rates, riders and consumer protections differ by state, and a given product may not be available in every state. Honorbrook is licensed in the 11 states below; which products we can offer you depends on what carriers sell in your state. Each state’s insurance regulator can verify an agent’s license and answer consumer questions.
- Virginia: Virginia Bureau of Insurance
- Maryland: Maryland Insurance Administration
- North Carolina: North Carolina Department of Insurance
- South Carolina: South Carolina Department of Insurance
- Georgia: Georgia Office of Insurance and Safety Fire Commissioner
- Alabama: Alabama Department of Insurance
- Louisiana: Louisiana Department of Insurance
- Texas: Texas Department of Insurance
- Michigan: Michigan Department of Insurance and Financial Services
- Indiana: Indiana Department of Insurance
- West Virginia: West Virginia Offices of the Insurance Commissioner
This article is general information and is not tax, legal, investment or financial advice. Annuity guarantees depend on the issuing company’s claims-paying ability, and surrender charges and fees may apply. A licensed agent can help with your situation.